22 Sep 2008

Bush defends massive financial rescue plan

3:55 pm on 22 September 2008

United States President George Bush has defended a $US700 billion financial rescue plan, saying it will cost American families far less than the alternative.

The Bush administration sent the plan to Congress on Saturday, where Democrats immediately questioned its impact on homeowners and taxpayers.

The US Treasury is proposing a fund that would be used to buy back a large proportion of the bad debt in the US mortgage market. The fund would hold the debts until they can be sold off in the future.

Mr Bush acknowledged the plan would put large amounts of taxpayer money on the line to buttress shaky markets.

"But I'm convinced that this bold approach will cost American families far less than the alternative," he said in his weekly radio address.

"Further stress on our financial markets would cause massive job losses, devastate retirement accounts, further erode housing values, and dry up new loans for homes, cars and college tuitions."

New York Democratic senator Charles Schumer, chairman of Congress' joint economic committee, said the plan is a good start. "But it includes no visible protection for taxpayers or homeowners. We look forward to talking to Treasury to see what, if anything, they have in mind in these two areas," he said.

Democrats have said they might try to use the financial bailout legislation to reduce home foreclosures and put some limits on the pay of corporate chief executives.

In a related move, the US government's debt limit would be raised to $US11.315 trillion from $US10.615 trillion.

Congressional committees were to be briefed on Saturday on the legislation, which could be considered by the US House of Representatives and Senate as early as next week.

Pivotal moment, says Bush

Announcing the move on Friday, Mr Bush said government intervention was necessary to solve the problems plaguing the financial markets, calling it a "pivotal moment for America's economy".

"Given the precarious state of today's financial markets and their vital importance to the daily lives of the American people, government intervention is not only warranted, it is essential," he said.

However, the proposals drew criticism from Republican presidential nominee John McCain.

"The Federal Reserve should get back to its core business of responsibly managing our money supply and inflation," he told reporters.

Democratic rival Barack Obama gave his backing to plans to give the Treasury department "broad authority" to deal with the crisis.

But Mr Obama says any government rescue for Wall Street must shield regular Americans, and not just protect people who have played the market.